Kenya’s capital markets are entering a transformative phase as the Capital Markets Authority (CMA) ramps up efforts to integrate Environmental, Social, and Governance (ESG) standards into corporate and investment practices. 

The push, outlined in the 7th Edition of the CMA State of Corporate Governance Report, is part of a renewed push to foster sustainability, ethical leadership, and long-term value creation.

In partnership with FSD Kenya, the CMA is undertaking an ESG assessment aimed at evaluating existing practices and the broader ecosystem within the capital markets. 

"This comprehensive review will inform the refinement of the ESG Policy Framework while also identifying strategic incentives to attract ESG focused investments in Kenya," CMA chief executive Wyckliffe Shamiah stated.

Additionally, the CMA said it will be tapping cutting-edge technologies such as Artificial Intelligence (AI), machine learning, and blockchain to enhance ESG data management, analysis, and reporting. 

“Such innovation ensures sustainability remains at the core of our developmental agenda,” the CMA report said in part.

By adopting these technologies, the Authority aims to align Kenya’s markets with international standards, boosting the nation’s appeal as a destination for sustainable investments.

As part of its sustainability agenda, the CMA is also conducting a detailed carbon market assessment. This initiative involves mapping stakeholders, analyzing demand and supply dynamics, and evaluating risks and opportunities within Kenya’s carbon market ecosystem. 

These efforts are expected to catalyze the growth of a vibrant carbon market, furthering Kenya’s commitment to climate change mitigation.

Board-level commitment to ESG

To better institutionalize ESG principles, the CMA report highlights the role of Boards of Directors in shaping sustainable practices in the country. The Authority recommends that boards should develop and implement ESG policies to govern corporate sustainability initiatives. 

Designating specific board committees to oversee ESG practices was cited as a key strategy to integrate these principles effectively.

"Boards must take a leadership role in ensuring the integration of ESG practices, fostering long-term business and economic success," the report adds.

Such governance measures not only enhance corporate sustainability but also build investor confidence, signaling reliability and long-term value creation.

The markets regulator observed that companies in Kenya are increasingly adopting integrated reporting frameworks, combining financial and non-financial disclosures to align with global best practices. 

However, the CMA encouraged issuers to adopt globally recognized standards, such as IFRS Sustainability Disclosure Standards (IFRS S1 & S2). These standards offer a uniform baseline for reporting sustainability and climate-related risks, enabling comparability and transparency.

The Institute of Certified Public Accountants of Kenya (ICPAK) recently launched a roadmap for adopting IFRS S1 and S2, underscoring the nation’s commitment to advancing sustainability reporting.

Already, some listed companies such as Absa Bank Kenya, the East African Breweries Ltd as well as Safaricom PLC have announced plans to adopt IFRS S1 and S2.

"Our goal is to begin incorporating IFRS S1 and IFRS S2 disclosures in our reporting cycle starting from 2025, with full alignment anticipated by 2027. Our teams are actively working to ensure a seamless transition, including updating our reporting systems, training staff, and engaging with external advisors to support this integration," EABL's 2024 Sustainability Report states in part.

According to a June 2024 update by advisory multinational Ernest and Young (EY), "IFRS S1 is designed to be applied in conjunction with IFRS S2, which is a topic-based standard that specifies disclosures relating to climate."

Experts note that IFRS S1 and S2 allow companies to step up transparency, comparability, and most importantly, consistency in their sustainability reporting.

Across the globe, investors are placing growing emphasis on ESG metrics as critical indicators of corporate sustainability and resilience. By integrating ESG principles, Kenyan companies can not only enhance their market reputation but also tap into a broader pool of ESG-focused capital.

The CMA highlights the role of ethical leadership and social responsibility in attracting sustainable investments, stating: “This not only strengthens the market reputation but also aligns corporate strategies with global sustainability standards, broadening funding opportunities.”

The CMA’s renewed push for ESG integration represents a pivotal step towards establishing Kenya as a hub for sustainable investments in Africa. By fostering a culture of transparency, innovation, and ethical governance, the Authority is paving the way for a greener, more sustainable future.

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